Search form

BCBSNC’s Premium Refunds Show the Perils of ObamaCare

Some of the worst news for President Barack Obama’s beleaguered
health care law comes from North Carolina. Yet the law’s supporters
are treating it like good news.

When President Obama signed his health care overhaul into law in
March, he said it would “lower costs for families and for
businesses” and that “children who have a pre-existing condition
will finally be able to purchase the coverage they need.” Much has
already been made of the fact that ObamaCare is instead triggering
premiums hikes as high as 30 percent and causing insurers to flee
the market for child-only coverage.

But BlueCross BlueShield of North Carolina’s announcement that
it will refund $156 million to policyholders shows that ObamaCare
is replacing badly needed consumer protections with price controls
that imperil access to care for the seriously ill.

Competition used to
discourage skimping; ObamaCare rewards it.

Market competition long ago generated a consumer protection
called a renewal guarantee: if you get sick, your premiums rise at
the same rate as the healthy people in your pool. To deliver that
protection, insurers collect extra money from healthy policyholders
up front to cover the future medical bills of those who become
seriously ill. That $156 million is the money BCBSNC collected to
pay the future medical bills of its policyholders.

In 2014, however, ObamaCare will eliminate BCBSNC’s “guaranteed
renewable” plans. The law will also require insurers to charge
everyone in a given age group the same premium, regardless of
risk.

Since BCBSNC now only needs enough to cover their sick
policyholders for three more years, they refunded policyholders an
average of $725. Secretary of Health and Human Services Kathleen
Sebelius praised the refunds as evidence of ObamaCare’s
benevolence.

Sebelius has it entirely backward. Guaranteed renewability
protects consumers by enabling insurers to profit from covering the
sick. ObamaCare is replacing that protection with government price
controls that will reduce access to care for the seriously ill by
turning the sick into a losing proposition for insurers.

Here’s how. Suppose that, within a given age group, healthy
people cost $5,000 to insure, while the seriously ill cost $25,000.
When ObamaCare’s price controls force insurers to charge everyone
the same premium (say, $10,000), insurers will compete to enroll
healthy people (profit: $5,000) and avoid the sick (loss:
$15,000).

If they don’t flee the market entirely — which is already
happening in the market for child-only coverage — insurers
will keep seriously ill patients away by providing lousy access to
care.

BCBSNC’s refunds show that ObamaCare is leaving seriously ill
patients with less protection, not more. Health insurance was
hardly perfect before ObamaCare, but BCBSNC’s policyholders had
insurance that had pre-funded many of their future medical
bills.

Now, ObamaCare has effectively transferred those reserves from
the sick to the healthy. Seriously ill policyholders now have less
protection against BCBSNC reneging on its commitments to them.
Competition used to discourage skimping; ObamaCare rewards it.